The use of unemployment insurance and minimum wages as instruments for redistributing income are analyzed. The government is assumed to be able to implement an optimal income tax in an economy consisting of two ability-types of persons. The effect of introducing a minimum wage which induces...

A model is constructed in which, given the inability of implicit contracts to be self-enforcing, a minimum wage policy combined with unemployment insurance can be welfare-improving. Unemployment insurance can be decentralized to the private sector if the government can commit to a minimum wage....

Time inconsistency of tax policy is shown to arise in a setting in which households differ in their ability to accumulate wealth and the government has redistributional objectives. The government can levy non-distorting taxes but is precluded from redistributing optimally by a self-selection...

Regions inhabited with an immobile population of disabled and able individuals compete to attract mobile firms that provide jobs. The redistributive goal of regional governments is to support the disabled, who cannot work. Able individuals may work, be involuntary unemployed because of frictions...

This paper examines the impact of unemployment insurance (UI) on employment and unemployment in an industry in which the prices can vary due to some market power or general equilibrium (GE) effects. Some non-conventional results are obtained. First, it is shown that in an industry in which firms...

A classic argument in the theory of crime is that optimal enforcement policy should involve maximal sanctions combined with minimal detection costs. Yet this is rarely observed in the real world. We argue that reson for this has to do with the time inconsistency of such a policy. If sanctions...

Until fairly recently, the Pigovian position that activities generating unpriced external economies would be undersupplied was universally accepted. It rested on the simple assertion that marginal social benefits exceeded marginal private benefits of the activity, and that, by equating the...

Using the self-selection approach to tax analysis, this paper derives a modified Samuelson Rule for the provision of public goods when the government deploys an optimal non-linear income tax. This approach gives a straightforward interpretation of the central result in this area, generalizes it...

Despite the fact that all developed economies levy broadly-based indirect taxes alongside direct taxes, little theory is devoted to explaining the direct-indirect tax mix. Our purpose is to show that if different taxes have different evasion characteristics, some optimal tax mix emerges...

We examine whether minimum wages can fulfill a useful role as part of an optimal nonlinear income tax scheme. In this setting, governments cannot observe household abilities, only their incomes. Redistributing according to income, the government is constrained by a set of incentive constraints....